2 Huge Leadership Lessons from JPMorgan

Geoff Loftus
, ContributorI write about leadership in history, pop culture and business.Opinions expressed by Forbes Contributors are their own.

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I don't blame you if your first reaction after reading the headline is to say, “Only 2?” There are probably dozens of significant leadership lessons to be drawn from the JPMorgan Chase debacle. But it's unlikely I will live long enough to write such a comprehensive piece – so we'll go for the Big 2:

Lousy Risk Assessment Doesn't Work

After other banks were staggered by what happened in 2008 (technically, the recession started in December 2007, but what's a month between friends and economists?),
JPMorgan Chase looked like the model of a well run bank, and Jamie Dimon got a lot of the credit for that. Here was a bank that knew how to manage risk. Well . . . not so fast . . .

Turns out that the risk assessors didn't ask “What if . . . ?” in enough different ways to appreciate all the possible risks. Or, maybe they did, and leadership failed to hear a realistic assessment of risk. (One of the corollaries of Murphy's Law in business is: The more profits you make, the less likely you are to hear bad things.)

Somewhere in the risk management chain – at the risk assessment level or the leadership level – someone blew it. It's easy to shrug and say everyone makes mistakes. In fact, Jamie Dimon has said that even talented people make huge blunders. But good risk management is about stopping mistakes before the errors run up billion-dollar tallies.

Effective risk management keeps losses to a minimum or eliminates them. It's impossible to argue that JPMorgan Chase had a good program when the losses are $2 billion and climbing. (Plenty of people have pointed out that even if the losses total $5 billion, they won't threaten JP

Refusing to Learn from Mistakes is Stupid

Dimon & Co. have refused to learn from mistakes – both theirs and others' – time and again. When the recession first hit, they didn't reassess what they were doing in light of the failures of others, particularly AIG. (AIG was messing with a different investment, but allowed a small group and big profits to drive its handling of gigantic risk.)

After the collapse, Jamie Dimon led the way in lobbying against new regulations. In the banking gospel according to Dimon, bankers had learned their lessons the hard way and there was no need for excessive regulation. He championed a watered-down version of the Volcker Rule, which would limit banks portfolio hedging pretty severely – and probably would have saved JPMorgan from its current losses. You might wonder if, in the wake of those losses, Mr. Dimon has changed his tune about the Volcker Rule. Nope. (Talk about not learning from mistakes . . . )

Finally, Dimon seems to have learned the wrong lesson from the current, multi-billion dollar mistake:

As Denning points out: “Unfortunately this pervasive, and seemingly plausible, idea that a firm like JPMorgan should be focused on maximizing shareholder value is misguided. It ignores Peter Drucker’s foundational insight of 1973 that the only valid purpose of a firm is to create a customer. Paradoxically, focusing on maximizing shareholder value ends up making less money for shareholders, because it leads firms to do things, like the recent JPMorgan gambles that actually destroy shareholder value.”

Or, with summer approaching, maybe you'd like a good beach read. Please try Double Blind, a thriller about two blind dates with two beautiful women and two deadly secrets. (And the Mafia, Federal agents, violence, sex, double-crosses, and murder.)